First time buyers are more likely than ever to take out long term mortgages of 25 - 40 years, according to research from the Financial Conduct Authority (FCA).
Longer borrowing terms are becoming increasingly popular, particularly amongst those wishing to buy more expensive homes than they could otherwise afford and ensure their monthly repayments are manageable.
However, although this approach is helping people get onto the property ladder, it’s seeing many homebuyers paying more interest in the long run.
How common are long term mortgages?
According to the FCA, a whopping 39% of mortgage loans approved in 2016 were for terms longer than 25 years, up from 17% in 2007.
Traditionally, 25 year terms have been most popular with home buyers, but it seems this is changing thanks largely to increasing house prices in recent years.
How much more expensive is a long term mortgage?
A first time buyer borrowing £130,000 at 3% over 35 years would pay a whopping £80,082 in interest over the course of their mortgage. If they were to decrease their term to 25 years, the amount of interest owed would fall to £54,911.
Unfortunately, the second option is less affordable for many homebuyers as it would see them repaying £616 a month rather than £500 a month.
Dan Wilson Craw, Director of Generation Rent, said: “These figures reveal that the majority can now only access homeownership by taking out a longer mortgage.
“If renting provided affordable long-term homes, fewer people would feel so desperate to escape that they’d take on 30 or more years of debt in order to buy. The government urgently needs to reform private tenancies to give more stability to renters’ lives.”
